What is accrued liability?

An accrued liability is an obligation for expenses incurred but not yet paid or invoiced, recorded to match expenses with the period in which they were incurred under accrual accounting. For professional service firms, accrued liabilities include unpaid wages, accrued bonuses, and incurred but unbilled vendor services.

Key characteristics

• Expense incurred, not paid

• Recorded as a liability

• Matches expense to period

• Reversed when paid

• Part of accrual accounting

• Estimated if necessary

Why it matters for professional service firms

Without accrued liabilities, expenses appear in the wrong period, and liabilities are understated. Proper accruals ensure accurate financial statements. Professional service firms should accrue significant liabilities at period end to reflect true obligations.

Real-world example

Sarah's month-end accrued liabilities: wages earned but not paid $28,000, employer payroll taxes on accrued wages $2,400, professional services received but not invoiced $4,500, and utilities estimated $1,200. Total accrued liabilities $36,100 recorded, ensuring December expenses are reflected in December activity regardless of payment timing.